Sunday 30 August 1998
The pound rose 6 pfennigs against the mark last week, to its highest since early July. Yet analysts said it will not rise more than 3 or 4 more pfennigs, as recent reports on manufacturing and trade showed that the British economy is slowing, and suggested that interest rates will now rise any more. Indeed, they may fall.
The pound's decline in recent weeks "has been temporarily halted by events in Russia", said Stephen Hannah, the director of research at IBJ International. "But we're still in a bear market [for the pound]," he added.
While the pound could rise to DM3.00, "it'll struggle to get beyond it, as people start to think about interest rates again".
The pound fell on Friday, for the first time in nine days, to DM2.9612, from DM2.9708 late on Thursday. Against the dollar, it rose to 1.6687, from 1.6500.
Having lost more than $117bn on Russian securities this year as that country's stock market crashed, its currency tumbled and it defaulted on debt, investors are wary of high-risk assets and are seeking safer investments.
With interest rates higher than in any other developed European economy, the UK is a haven for investment until market turmoil ends, analysts said.
The UK's benchmark overnight lending rate is 7.5 per cent, compared with 5.50 per cent in the US and 3.30 per cent in Germany and France.
The Bank of England's Monetary Policy Committee next considers interest rates when it meets on 9 and 10 September. It has raised rates six times since May 1997, to slow economic growth and keep inflation in check.
While growth is slowing, the inflation rate hasn't yet eased enough for a reduction in rates, analysts said.
"It'll be some time before rates start to fall," said Derek Halpenny, a currency economist at Bank of Tokyo-Mitsubishi.
Although inflation slowed to 2.6 per cent last month - close to the Bank of England's 2.5 per cent target - the central bank remains concerned that pressure for higher wages may push inflation higher. It forecast a temporary increase in inflation earlier this month.
"The big hit taken by commercial banks and hedge funds on Russia has put a hole in their balance sheets, and they're trying to trade their way out," said Mike Wallace, who manages European currency analysis at Standard & Poor's MMS International.
The dollar suffered its worst decline in 15 months against the mark and pared gains against the yen, as US.stocks fell amid concern that Russia's financial crisis will spread to other emerging markets.
The dollar fell to DM1.7647, or 1.9 per cent, from 1.7988 yesterday in New York, its biggest decline since 20 May, 1997. The US currency rose to Y142.35, down from as high as Y144.25 in earlier trading, though up from Y141.99 on Thursday.
"It's following the Dow," said Simon Fowles, a trader at Wells Fargo Bank, in San Francisco. "The Dow goes down, the dollar goes down."
- 2 Watch the Supermoon live: How to see the brightest Moon of the year tonight
- 3 Hulk Hogan wants to be Donald Trump's running mate in the US Presidential election
Caitlyn Jenner car crash: Driver who died in collision sued by surviving passengers for $18.5m
Watch the Supermoon live: How to see the brightest Moon of the year tonight
Hulk Hogan wants to be Donald Trump's running mate in the US Presidential election
Blood Moon and Supermoon: September to bring brightest – and dimmest – full Moon of the year on same night
Turkey duped the US, and Isis reaps rewards
Climate change: 2015 will be the hottest year on record 'by a mile', experts say
'Women only' train carriages: Jeremy Corbyn unveils radical move to tackle public harassment
Black holes are a passage to another universe, says Stephen Hawking
Iain Duncan Smith 'should resign over disability benefit death figures', says Jeremy Corbyn
Tony Blair attacks Jeremy Corbyn's 'Alice In Wonderland' politics
Theresa May says migrants should be banned from entering the UK unless they have jobs lined up
iJobs Money & Business
£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...
£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...
£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...
£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...